The success formula in retail is to sell as much merchandise as you can at the highest possible margin. Sounds simple, right? Most retailers agree with and operate their stores based on this principle. But it doesn’t mean retailers buy products they think will be good or simply merchandise they like for their store and give each a high mark-up. Retailers need to be much more strategic.
The six types of merchandise identified below play a specific and beneficial role to the profitability of a retail store. And any retailer who wants to survive in today’s marketplace needs to consistently carry all six types. Customer experience is impacted dramatically by your merchandising skills, and the six types listed here were identified as major customer experience enhancers.
Why do customers come to your store? What product do you sell that motivates customers enough to pass two or three other stores to come to yours instead? This destination merchandise elevates you above the competition. It may be a product no one else sells or a product that’s far better than what your competitor sells. In many cases, it is a limited edition item. But even if it's regular stock, what do you carry that your competition ignores? Think of it as your signature merchandise, or what you are known for.
This type of merchandise wows customers and heightens their impression of your business. All retailers should maintain a level of at least 10% of this type of merchandise as part of their overall inventory mix. Note that while customers are wowed by these products, they don't necessarily buy them; which is why you want to keep the amount low and controllable. Image-enhancer merchandise is necessary to create the wow factor that generates word-of-mouth advertising among your customers.
When customers buy a transaction-builder item, they are required to purchase several more products to use it. For example, if someone buys a gallon of paint, they’ll need to buy a brush, a roller, a drop cloth, and all the other accessories required to use the paint. Therefore, the store owner can give a huge discount on the price of the paint and rely on the huge margins of the accessories. Look for ways to incorporate more transaction-building merchandise throughout your store. And consider bundles for these types of merchandise as well to help maintain your margins. Training is a big part of making this type of merchandising work in your store. Make sure your employees know the strategy. Remember, an employee will sell the discounted paint and think they did a good job for having sold something. You need to educate them on the strategy and make sure they are using their selling skills to add on to the sale.
What merchandise do you carry that attracts customers to your store over and over again? What products do you carry that keep customers in your store longer? For example, if you are a convenience store, you would want to carry lottery tickets. While traffic builders are usually products, they might also be strong visual merchandising ideas features like an interactive display. These kinds of products and visual merchandising techniques create buying frenzies among consumers.
This is the merchandise you sell with high margins. Of course, customers don’t define these products as “profit generators,” but they should always be included in the mix of merchandise you sell. Consider buying closeouts from your vendors so you can get higher margins, but still show a discount to the customer.
Retailers typically don’t enjoy carrying this type of merchandise, but they must in order to do business. For example, a travel stop may hate carrying diesel fuel needed by large trucks. They don’t make money on the fuel, they make money on the other products and services they offer in the store, like coffee, food, or showers. But no one will come into the store if the retailer doesn’t sell the diesel fuel. This is proof that the products you sell may not be products you personally like, so start thinking in terms of what will bring customers into your store.